Comex gold erased morning gains to end up slightly on Wednesday amid late position jockeying before the end of the quarter and the long-anticipated interest rate hike announced by the Federal Reserve after metals trade closed.
"I thought there would be a little bit of window dressing. But I think people who were expecting that caught themselves a little long, then got forced out," said Paul McLeod, a vice president of gold trading at Commerzbank Securities.
"In the last ten minutes we saw a little bit of price action, just people being forced to square themselves up."
The Fed wrapped up a two-day meeting mid afternoon by declaring, as expected, a quarter percentage point increase in the key fed funds target rate for overnight lending between banks, the first tightening in more than four years.
It indicated it would follow a restrained course of small hikes, and that monetary policy remains accommodative to promote economic activity.
August gold settled up 20 cents at $393.00 an ounce, trading between $397.30 and $392.00. Benchmark gold recoiled from a 10-week high on Tuesday at $405.10 as the market priced in the 25 basis point hike.
For months the central bank had telegraphed some concern about inflation returning and its intent to begin a measured tightening to prevent the economy from overheating. "The statement did mention the term measured, which was in the last statement.
People feared that if they pulled it, then a 50 basis point rise could be on table," said James Pagoda, a vice president of bullion dealing at Mitsubishi International Corp. "They leave open the door for 50 if they have to.
If we see sharper rate rises, it should be dollar positive and bearish for gold." The Fed last raised rates in May 2000 and first eased in January 2001 to fight the recession in place at that time and restore confidence to US markets shaken by the September 11, 2001 attacks on the World Trade Centre and Pentagon.
Dollar deposit rates fell to their lowest level since the late 1950s around 1 percent, which made gold, which carries no yield, shine by comparison as an alternative. The safe-haven metal rose to a 15-year high at $430 in April as investors switched out of the dollar.
But the psychological $400 barrier has been daunting since prices fell back to $372.50 in May, especially with the dollar recovering from its lows in expectation of the interest rate increase.
Spot gold was marked upward in New York after the Fed announcement and was last quoted at $393.00/3.75, up from the previous close at $392.00/2.75. The afternoon fix in London was $395.80.
September silver fell 7.8 cents to $5.795 an ounce, trading from $6.015 to $5.73. Spot silver was quoted $5.81/84, down from $5.83/86. The London fix was $5.91. October platinum went up $11.40 to $782 an ounce. Spot fetched $785/790. September palladium fell $4.65 to $214.95. Spot closed at $212/217.
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